Power customers with standing contracts for electricity in South Australia are to get a price cut of 9.1 per cent.
The change will take effect from January.
SA Premier Jay Weatherill said a two-year arrangement had been struck with AGL and Origin Energy.
"We won't allow the Supreme Court challenge by AGL to the Essential Services Commission of South Australia's (ESCOSA) proposed 8.1 per cent cut to the standing contract to put at risk lower power prices for South Australians," the Premier said.
"Rather than put this much-needed relief from power bills at risk, we have negotiated a commitment from AGL to cut the existing standing contract price for residential customers by 9.1 per cent and small business by 4.5 per cent with the retail component fixed for two years." Only about one quarter of South Australian power customers remain on standing contracts as others have moved to deals offered since the market was opened to greater competition.
Mr Weatherill said customers could expect to save an average of about $180 annually.
He said Origin Energy had agreed to cut the gas standing contract by 1 per cent from next February.
The Government said AGL would drop its legal action against ESCOSA, which stemmed from its earlier draft determination that standing contract prices should fall by 8.1 per cent.
At a Supreme Court hearing later in the day, the court ordered AGL to pay ESCOSA's legal costs after the matter was withdrawn.
Ross Womersley from the SA Council of Social Service urged companies to reduce their contract prices because of the change for standing contract customers.
Mr Weatherill said he expected to see downward pressure.
"We will see a price war that will see further downward pressure on electricity prices," he said.
Market changes The Government will also formalise its plan that all energy retailers must offer at least one contract that is free of any exit fees.
It said a market-based system to set electricity and gas prices would be introduced.
Energy Minister Tom Koutsantonis said retailers would need to meet some minimum conditions.
"Standing contracts offered by the new system will be based on nationally-established minimum conditions with all retailers required to offer at least one 'no exit-fee' product," he said.
"ESCOSA will remain in place as a price watchdog with the Government able to immediately reintroduce regulation at the first sign of collusion or any other anticompetitive behaviour." In South Australia, AGL holds about 51 per cent of the residential electricity market and Origin has 48 per cent of the gas market, ahead of the market shares held by any competitors.
Review The Government also will set up a review of energy pricing.
It says Small Business Commissioner Mike Sinkunas and Deputy Small Business Commissioner Associate Professor Frank Zumbo will lead the investigation.
The inquiry will review inset or embedded electricity networks often used by shopping centres, commercial buildings and industrial precincts.
"I have been concerned for some time there may be a substantial imbalance of bargaining power between a network operator and small business tenants purchasing electricity through that network," Mr Koutsantonis said.
Inset or embedded networks are where a network operator buys electricity from a licensed retailer and resells it to other customers.